STOCK REGISTRATION AND OPTION AGREEMENT
THIS STOCK REGISTRATION AND OPTION AGREEMENT (the "Agreement") is made
and entered into as of May 31, 1996, by and between XLCONNECT SOLUTIONS, INC., a
Pennsylvania corporation (the "Company"), on the one hand, and INTELLIGENT
ELECTRONICS, INC., a Pennsylvania corporation ("IE"), and THE FUTURE NOW OF
ARKANSAS, INC., an Arkansas corporation, the parent of the Company and an
indirect, wholly-owned subsidiary of IE ("TFNA"), on the other hand (IE and TFNA
are sometimes together referred to herein as the "Holder").
RECITALS
A. Upon the completion of the initial public offering of shares of
common stock, par value $0.01 per share ("Common Stock"), of the Company (the
"Initial Public Offering"), the Company will cease to be a wholly-owned
subsidiary of the Holder. IE has informed the Company that it has no current
plan or intention other than to hold its shares of Common Stock for the
foreseeable future. After the Initial Public Offering, other options which may
be considered by the Holder regarding its interest in the Company are whether to
sell all or a portion of its shares of Common Stock to the public in another
public offering or to a strategic investor or to distribute pro rata to IE's
shareholders its remaining shares in a tax-free or taxable distribution (the
"Distribution").
B. In connection with the Initial Public Offering, the Company is
preparing to file a registration statement with the Securities and Exchange
Commission (the "SEC") under the Securities Act of 1933, as amended (the
"Securities Act").
C. Following the Initial Public Offering, the Common Stock will be
registered under Section 12 of the Securities Exchange Act of 1934, as amended
(the "Exchange Act").
D. The Holder may desire to cause one or more of the potential
alternative transactions that it may pursue involving its shares of Common Stock
to be registered under the Securities Act and other applicable securities laws.
E. The Holder may desire to maintain a sufficient equity ownership in
the Company prior to the Distribution, if it were to occur, or any alternative
transaction involving its shares of Common Stock to allow the Company and its
subsidiaries to continue to be included in IE's consolidated federal income tax
returns and to increase the likelihood that the Distribution would be tax-free
to the Holder and its shareholders.
NOW, THEREFORE, the parties hereto agree as follows:
1. Demand Registration.
(a) Request for Registration. As used in this Agreement, "Restricted
Stock" shall mean all shares of Common Stock owned by the Holder as of the date
of the consummation of the Initial Public Offering and any shares of Common
Stock acquired by the Holder pursuant to the continuing option granted under
Section 8 hereof, together with any securities issued or issuable by the Company
or any successor thereto with respect to any such Common Stock by way of stock
dividend or in connection with a stock split, combination of shares,
recapitalization, merger, consolidation, reorganization or otherwise. As to any
particular outstanding shares of Restricted Stock, such securities shall cease
to be Restricted Stock when (i) a registration statement with respect to the
offer and sale of such securities shall have become effective under the
Securities Act and such securities shall have been disposed of in accordance
with such registration statement, (ii) such securities shall have been
distributed to the public pursuant to Rule 144 (or any successor provision)
under the Securities Act, (iii) such securities shall have been distributed to
the Holder's shareholders in the Distribution, (iv) such securities shall have
otherwise become freely distributable by the Holder thereof in a public offering
or otherwise without the necessity of registration or qualification of such
securities under the Securities Act or any similar state law then in force or
compliance with the volume and manner of sale or similar limitations under Rule
144 (or any successor provision) under the Securities Act, (v) such securities
shall have ceased to be outstanding, or (vi) the Holder thereof shall agree in
writing that such Restricted Stock shall no longer be Restricted Stock. The
Holder and any permitted assignee of the Holder's rights hereunder are referred
to herein as "Holders" and a Holder selling or distributing Restricted Stock
pursuant hereto is referred to herein as a "Selling Holder." Subject to the
provisions of Section 4 hereof, at any time and from time to time any Holder or
Holders holding in the aggregate 50% or more of the shares of the Restricted
Stock then outstanding may make a written request for registration under the
Securities Act of all or part of its or their Restricted Stock pursuant to this
Section 1 (a "Demand Registration"), provided that the number of shares of
Restricted Stock proposed to be sold or distributed pursuant to such
registration shall be equal to 20% or more of the aggregate number of shares of
Restricted Stock then outstanding, but (if fewer than all outstanding shares of
Restricted Stock are proposed to be so sold or distributed) in no event less
than 5% of the initial aggregate number of shares of Restricted Stock (subject
to appropriate adjustment for any stock dividend, stock split, combination,
recapitalization, merger, consolidation, reorganization or other occurrence
affecting the number of shares of Restricted Stock then outstanding). Such
request will specify the aggregate number of shares of Restricted Stock proposed
to be sold or distributed and will also specify the intended method of
disposition thereof. Within 10 business days after receipt of such request, the
Company will give written notice of such registration request to all other
Holders of Restricted Stock and include in such registration all Restricted
Stock with respect to which the Company has received written requests for
inclusion therein within 15 business days after the date on which such notice is
so given. Each such request will also specify the number of shares of Restricted
Stock to be registered and the intended method of disposition
-2-
thereof. No party other than a Holder shall be permitted to include securities
in any Demand Registration unless the Holder or Holders of 67% of the shares of
Restricted Stock to be included therein shall have consented thereto in writing.
(b) Priority on Demand Registration. If the Holders of a majority of
the shares of the Restricted Stock to be included in a Demand Registration so
elect, the offering of such Restricted Stock pursuant to such Demand
Registration shall be in the form of an underwritten offering. In such event, if
the managing underwriter or underwriters of such offering advise the Company and
the Holders in writing that in their opinion the aggregate amount of Restricted
Stock requested to be included in such offering is so large that it will
materially and adversely affect the success of such offering, the Company will
include in such registration the aggregate number of shares of Restricted Stock
which in the opinion of such managing underwriter or underwriters can be sold
without any such material adverse effect, and such number of shares shall be
allocated pro rata among the Holders of Restricted Stock on the basis of the
number of shares of Restricted Stock requested by such Holders to be included in
such registration. To the extent that 10% or more of the Restricted Stock so
requested to be registered is excluded from the registration, then the Holders
of such excluded Restricted Stock shall have the right to one additional Demand
Registration under this Section 1 with respect to such Restricted Stock,
provided that the failure of such Restricted Stock to be registered is through
no fault of such Holders, and provided, further, that such right to one
additional Demand Registration applies only to the first time that shares of
Restricted Stock are so excluded.
(c) Selection of Underwriters and Counsel. If any Demand Registration
is in the form of an underwritten offering, the Holders of a majority of the
shares of Restricted Stock to be registered will select and obtain the services
of the managing underwriter or underwriters that will administer the offering
and the counsel to such managing underwriter or underwriters; provided that such
managing underwriter or underwriters and counsel must be reasonably satisfactory
to the Company.
2. Piggyback Registration. If the Company proposes to file a
registration statement under the Securities Act with respect to an offering for
its own account of any class of its equity securities (other than a registration
statement on Form S-8 (or any successor form) or any other registration
statement relating solely to employee benefit plans or filed in connection with
an exchange offer, a transaction to which Rule 145 (or any successor provision)
under the Securities Act applies or an offering of securities solely to the
Company's existing shareholders), then the Company shall in each case give
written notice of such proposed filing to the Holders as soon as practicable
(but no later than 20 business days) before the anticipated filing date, and
such notice shall offer each Holder the opportunity to register such number of
shares of Restricted Stock as such Holder may request. Each Holder desiring to
have Restricted Stock included in such registration statement shall so advise
the Company in writing within 10 business days after the date on which the
Company's notice is so given, setting forth the number of shares of Restricted
Stock for which registration is requested. If the Company's offering is to be an
underwritten offering, the Company shall, subject to the further provisions of
this Agreement, use its reasonable best efforts to cause the
-3-
managing underwriter or underwriters to permit the Holders of the Restricted
Stock requested to be included in the registration for such offering to include
such Restricted Stock in such offering on the same terms and conditions as any
similar securities of the Company included therein. The right of each Holder to
registration pursuant to this Section 2 in connection with an underwritten
offering by the Company shall, unless the Company otherwise assents, be
conditioned upon such Holder's participation as a seller in such underwritten
offering and its execution of an underwriting agreement with the managing
underwriter or underwriters selected by the Company. Notwithstanding the
foregoing, if the managing underwriter or underwriters of such offering deliver
a written opinion to the Company that either because of (a) the kind of
securities that the Company, the Holders and any other persons or entities
intend to include in such offering or (b) the size of the offering that the
Company, the Holders and any other persons or entities intend to make, the
success of the offering would be materially and adversely affected by inclusion
of the Restricted Stock requested to be included, then (i) in the event that the
size of the offering is the basis of such managing underwriter's opinion, the
number of shares of Restricted Stock to be registered and offered for the
accounts of Holders shall be reduced pro rata on the basis of the number of
securities requested by such Holders to be registered and offered to the extent
necessary to reduce the total amount of securities to be included in such
offering to the amount recommended by such managing underwriter or underwriters
(provided that if securities are being registered and offered for the account of
other persons or entities in addition to the Company, such reduction shall not
be proportionally greater than any similar reductions imposed on such other
persons or entities) and (ii) in the event that the combination of securities to
be offered is the basis of such managing underwriters opinion, (x) the
Restricted Stock to be included in such registration and offering shall be
reduced as described in clause (i) above or (y) if such actions would, in the
judgment of the managing underwriter, be insufficient to substantially eliminate
the adverse effect that inclusion of the Restricted Stock requested to be
included would have on such offering, such Restricted Stock will be excluded
entirely from such registration and offering. Any Restricted Stock excluded from
an underwriting shall, if applicable, be withdrawn from registration and shall
not, without the consent of the Company, be transferred in a public distribution
prior to the earlier of 90 days (or such other shorter period of time as the
managing underwriter may require) after the effective date of the registration
statement or 150 days after the date the Holders of such Restricted Stock are
notified of such exclusion.
3. Registration Procedures. Whenever, pursuant to Section 1 or 2
hereof, Holders of Restricted Stock have requested that any Restricted Stock be
registered, the Company shall, subject to the provisions of Section 4 hereof,
use its reasonable best efforts to effect the registration and the sale or
distribution of such Restricted Stock in accordance with the intended method of
disposition thereof as promptly as practicable, and in connection with any such
request, the Company shall:
(a) in connection with a request pursuant to Section 1 hereof, prepare
and file with the SEC, not later than 45 days after receipt of such a request, a
registration statement on any form for which the Company then qualifies and
which counsel for the Company shall deem appropriate and which form shall be
available for the sale or distribution
-4-
of such Restricted Stock in accordance with the intended method of distribution
thereof, and use its reasonable best efforts to cause such registration
statement to become effective; provided that, if the Company shall furnish to
the Holders making such a request a certificate signed by either the Chief
Executive Officer or the Chief Financial Officer of the Company stating that in
his or her good faith judgment it would be significantly disadvantageous to the
Company for such a registration statement to be filed on or before the date
filing would otherwise be required hereunder and explaining the reasons
therefor, the Company shall have an additional period of not more than 90 days
within which to file such registration statement; and, provided further, that
(i) before filing a registration statement or prospectus or any amendments or
supplements thereto, the Company will furnish to one counsel selected by the
Holders of a majority of the shares of Restricted Stock covered by such
registration statement copies of all such documents proposed to be filed, which
documents will be subject to the review and comment of such counsel and (ii)
after the filing of the registration statement, the Company shall promptly
notify each Selling Holder of Restricted Stock of any stop order issued or, to
the knowledge of the Company, threatened by the SEC and take all reasonable
actions to prevent the entry of such stop order or to remove it if entered;
(b) in connection with a request pursuant to Section 1 hereof, prepare
and file with the SEC such amendments and supplements to such registration
statement and the prospectus used in connection therewith as may be necessary to
keep such registration statement effective for a period of not less than 90 days
or such shorter period as shall terminate when the distribution of all
Restricted Stock covered by such registration statement shall have terminated
(but not before the expiration of the 90-day period referred to in Section 4(3)
of the Securities Act and Rule 174 thereunder, if applicable) and comply with
the provisions of the Securities Act with respect to the disposition of all
securities covered by such registration statement during such period in
accordance with the intended methods of disposition by the Selling Holders
thereof set forth in such registration statement;
(c) as soon as reasonably practicable, furnish to each Selling Holder,
prior to filing a registration statement, copies of such registration statement
as proposed to be filed and thereafter furnish to such Selling Holder such
number of copies of such registration statement, each amendment and supplement
thereto, the prospectus included in such registration Statement (including each
preliminary prospectus) and such other documents as such Selling Holder may
reasonably request in order to facilitate the disposition of the Restricted
Stock owned by such Selling Holder;
(d) use its reasonable best efforts to register or qualify such
Restricted Stock under such other securities or blue sky laws of such
jurisdictions within the United States and Canada as any Selling Holder
reasonably (in light of such Selling Holder's intended plan of distribution)
requests and do any and all other acts and things which may be reasonably
necessary or advisable to enable such Selling Holder to consummate the
disposition in such jurisdictions of the Restricted Stock owned by such Selling
Holder; provided that the Company shall not be required to (i) qualify generally
to do business or file a general consent to service of process in any
jurisdiction or (ii) take any action that would subject itself to taxation in
any such jurisdiction;
-5-
(e) promptly notify each Selling Holder of such Restricted Stock, at
any time when a prospectus relating thereto is required to be delivered under
the Securities Act, of the occurrence of any event known to the Company
requiring the preparation of a supplement or amendment to such prospectus so
that, as thereafter delivered to the purchasers or recipients of such Restricted
Stock, such prospectus will not contain an untrue statement of a material fact
or omit to state any material fact required to be stated therein or necessary to
make the statements therein not misleading and promptly make available to each
Selling Holder any such supplement or amendment;
(f) in connection with a request pursuant to Section 1 hereof, enter
into an underwriting agreement in customary form, the form and substance of such
underwriting agreement being subject to the reasonable satisfaction of the
Company and a majority in interest of the Selling Holders;
(g) make available for inspection by any Selling Holder, any
underwriter participating in any sale or distribution pursuant to such
registration statement and any attorney, accountant or other agent retained by
any such Selling Holder or underwriter (collectively, the "Inspectors") all
financial and other records, pertinent corporate documents and properties of the
Company (collectively, the "Records") as shall be reasonably necessary to enable
them to exercise their due diligence responsibility, and cause the Company's
officers and employees to supply all information reasonably requested for such
purpose by any such Inspector in connection with such registration statement;
provided that the Company shall have no obligation to permit such access to the
Records or its officers or employees in a manner that would unreasonably disrupt
the normal conduct of its business operations. Each such Selling Holder and
Inspector that actually reviews Records supplied by the Company that include
information that the Company identifies, in good faith, as being confidential or
proprietary ("Confidential Information") shall be required at the Company's
option, prior to any such review, to execute an agreement with the Company
providing that such Inspector shall not publicly disclose any Confidential
Information unless such disclosure is required by applicable law or legal
process and shall not use such information for any purpose other than the
limited purpose contemplated by this subsection (g). Each such Selling Holder
and Inspector shall be required further to agree that it shall, upon learning
that disclosure of Confidential Information is sought in a court of competent
jurisdiction, give notice to the Company and allow the Company, at its expense,
to undertake appropriate action to prevent disclosure of the Confidential
Information;
(h) in the event such sale is pursuant to an underwritten offering, use
its reasonable best efforts to obtain a comfort letter or letters from the
Company's independent public accountants in customary form and covering such
matters of the type customarily covered by comfort letters as the managing
underwriter reasonably requests; and
(i) otherwise use its reasonable efforts to comply with all applicable
rules and regulations of the SEC and make available to its security holders, as
soon as reasonably practicable, an earnings statement complying with the
provisions of Section 11(a) of the
-6-
Securities Act (including, at the option of the Company, pursuant to Rule 158
(or any successor provision) under the Securities Act).
Upon receipt of any notice from the Company of the occurrence of any
event of the kind described in subsection (e) hereof, such Selling Holder shall
forthwith discontinue all offerings, sales and other dispositions of Restricted
Stock pursuant to the registration statement covering such Restricted Stock
until such Selling Holder's receipt of the copies of the supplemented or amended
prospectus contemplated by subsection (e) hereof. In the event the Company shall
give any such notice, the Company shall extend the period during which such
registration statement shall be maintained effective pursuant to this Agreement
(including the period referred to in subsection (b) hereof) by the number of
days during the period from and including the date of the giving of such notice
pursuant to subsection (b) hereof to and including the first date on which each
Selling Holder of Restricted Stock covered by such registration statement shall
have received the copies of the supplemented or amended prospectus contemplated
by subsection (e) hereof. Each Selling Holder shall notify the Company if any
event relating to such Selling Holder occurs which would require the preparation
of a supplement or amendment to the prospectus so that such prospectus will not
contain an untrue statement of a material fact or omit to state a material fact
required to be stated therein or necessary to make the statements therein not
misleading.
4. Conditions and Limitations.
(a) The Company's obligations under Section 1 hereof shall be subject
to the following limitations:
(i) the Holders rights to registration hereunder shall not become
effective until the end of the 180 day period immediately following the closing
of the Initial Public Offering and shall expire on the tenth anniversary of the
date of such closing;
(ii) the Company need not file a registration statement either (x)
during the period starting with the date 60 days prior to the Company's
estimated date of filing of, and ending 90 days after the effective date of, any
registration statement pertaining to securities of the Company (other than a
registration of securities on Form S-4 (or any successor form) with respect to a
transaction to which Rule 145 (or any successor provision) under the Securities
Act applies, or in an exchange offer, or on Form S-8 (or any successor form)
with respect to any employee benefit plan or dividend reinvestment plan);
provided that if such Company registration statement is not filed within 90 days
after the first date on which the Company notifies a Holder of Restricted Stock
that it will delay a Demand Registration pursuant to this clause (x), the
Company may not further postpone such Demand Registration pursuant to this
clause (x), or (y) during the period specified in the first proviso of
subparagraph (a) of Section 3 hereof;
(iii) except as provided in Section 1(b) hereof, the Company shall
not be required to cause to become effective more than three Demand
Registrations in total, and no more than two Demand Registration Statements
within any six month period; and
-7-
(iv) the Company shall have received the information and documents
specified in Section 5 hereof and each Selling Holder shall have observed or
performed its other covenants contained in Sections 5 and 7 hereof.
(b) The Company's obligation under Section 2 hereof shall be subject to
the limitations and conditions specified in such section and in clause (iii) of
subsection (a) of this Section 4, and to the condition that the Company may at
any time terminate its proposal to register equity securities for its own
account and discontinue its efforts to cause a registration statement to become
or remain effective as to any and all shares of Restricted Stock that would
otherwise have been eligible for inclusion in such registration.
5. Information from and Certain Covenants of Holders of Restricted
Stock. Notices and requests delivered to the Company by Holders for whom
Restricted Stock is to be registered pursuant to this Agreement shall contain
such information regarding the Restricted Stock to be so registered, the Holder
and the intended method of disposition of such Restricted Stock as shall
reasonably be required in connection with the actions contemplated to be taken
pursuant to this Agreement. Any Holder whose Restricted Stock is included in a
registration statement pursuant to this Agreement shall execute all consents,
powers of attorney, registration statements and other documents reasonably
required to be executed by it in order to cause such registration statement to
become effective. Each Selling Holder covenants that, in disposing of such
Holder's shares, such Holder will comply with Rules 10b-2, 10b-5, 10b-6 and
10b-7 (or any successor provisions) under the Exchange Act and all other
requirements of applicable law.
6. Registration Expenses.
(a) All Registration Expenses (as defined herein) will be borne by the
Company. Underwriting discounts and commissions applicable to the sale of
Restricted Stock shall be borne by the Holder of the Restricted Stock to which
such discount or commission relates, and each Selling Holder shall be
responsible for the fees and expenses of any legal counsel, accountants or other
agents retained by such Selling Holder and all other out-of-pocket expenses
incurred by such Selling Holder in connection with any registration under this
Agreement.
(b) As used herein, the term Registration Expenses means all expenses
incident to the Company's performance of or compliance with this Agreement
(whether or not the registration in connection with which such expenses are
incurred ultimately becomes effective), including without limitation all
registration and filing fees, fees and expenses of compliance with securities or
blue sky laws (including reasonable fees and disbursements of counsel in
connection with blue sky qualifications of the Restricted Stock), rating agency
fees, printing expenses, the fees and expenses incurred in connection with the
listing or admission for quotation of the securities to be registered an any
securities exchange or quotation system and fees and disbursements of counsel
for the Company and its independent certified public accountants (including the
expenses of any special audit or comfort letters required by or incident to such
performance), securities act liability insurance (if the Company elects to
-8-
obtain such insurance), the reasonable fees and expenses of any special expert
retained by the Company in connection with such registration and the fees and
expenses of other persons retained by the Company.
7. Indemnification; Contribution.
(a) Indemnification by the Company. In connection with any offering of
Restricted Stock pursuant to this Agreement, the Company shall indemnify and
hold harmless each Selling Holder, its officers, directors and agents and each
person, if any, who controls such Selling Holder within the meaning of either
Section 15 of the Securities Act or Section 20 of the Exchange Act from and
against any and all losses, claims, damages, liabilities and expenses (including
reasonable fees and disbursements of counsel) arising out of or based upon any
untrue statement or alleged untrue statement of a material fact contained in any
registration statement or prospectus relating to Restricted Stock or in any
amendment or supplement thereto or in any preliminary prospectus relating to
Restricted Stock or arising out of or based upon any omission or alleged
omission to state therein a material fact required to be stated therein or
necessary to make the statements therein not misleading in light of the
circumstances under which they were made, except insofar as such losses, claims,
damages, liabilities or expenses arise out of, or are based upon, any such
untrue statement or alleged untrue statement or omission or alleged omission
based upon information furnished in writing to the Company by such Selling
Holder or on such Selling Holder's behalf expressly for use therein. In
connection with any underwritten offering of Restricted Stock registered
pursuant to this Agreement, the Company shall cause to be included in any
underwriting agreement with the underwriters of such offering provisions
indemnifying and providing for contribution to such underwriters and their
officers and directors and each person who controls such underwriters on
substantially the same basis as the provisions of this Section 7 indemnifying
and providing for contribution to the Selling Holders.
(b) Indemnification by Holders of Restricted Stock. In connection with
any offering of Restricted Stock pursuant to this Agreement, each Selling
Holder, severally and not jointly, shall indemnify and hold harmless the
Company, its officers, directors and agents and each person, if any, who
controls the Company within the meaning of either Section 15 of the Securities
Act or Section 20 of the Exchange Act, and, in accordance with industry
practice, in the case of an offering of Restricted Stock pursuant to Section 2
of this Agreement, each underwriter of such Restricted Stock if requested by
such underwriter, from and against any and all losses, claims, damages,
liabilities and expenses (including reasonable fees and disbursements of
counsel) arising out of or based upon any untrue statement or alleged untrue
statement of a material fact contained in any registration statement or
prospectus relating to Restricted Stock or in any amendment or supplement
thereto or in any preliminary prospectus relating to Restricted Stock, or
arising out of or based upon any omission or alleged omission to state therein a
material fact required to be stated therein or necessary to make the statements
therein not misleading in light of the circumstances under which they were made,
provided that (i) such losses, claims, damages, liabilities or expenses arise
out of, or are based upon, any such untrue statement or alleged untrue statement
or omission or alleged omission based upon information furnished in writing to
the Company by
-9-
such Selling Holder or on such Selling Holder's behalf expressly for use therein
and (ii) no Selling Holder shall be liable for any indemnification under this
Section 7 in an aggregate amount which exceeds the total net proceeds received
by such Selling Holder from such offering. In connection with any underwritten
offering of Restricted Stock registered pursuant to this Agreement, each Selling
Holder shall cause to be included in any underwriting agreement with the
underwriters of such offering provisions indemnifying and providing for
contribution to such underwriters, their officers and directors and each person
who controls such underwriters on substantially the same basis as the provisions
of this Section 7 indemnifying and providing for contribution to the Company.
(c) Conduct of Indemnification Proceedings. If any action or proceeding
(including any governmental investigation) shall be brought or asserted against
any indemnified party hereunder in respect of which indemnity may be sought from
an indemnifying party hereunder, such indemnifying party shall assume the
defense thereof, including the employment of counsel reasonably satisfactory to
such indemnified party, and shall assume the payment of all expenses. Such
indemnified party shall have the right to employ separate counsel in any such
action and to participate in the defense thereof, but the fees and expenses of
such counsel shall be at the expenses of such indemnified party unless (i) the
indemnifying party has agreed to pay such fees and expenses, (ii) the
indemnifying party shall have failed to assume the defense of such action or
proceeding and employ counsel reasonably satisfactory to such indemnified party,
or (iii) the named parties to any such action or proceeding (including any
impleaded parties) include both such indemnified party and such indemnifying
party, and such indemnified party shall have been advised by counsel that there
may be one or more legal defenses available to such indemnified party which are
different from or additional to those available to the indemnifying party (in
which case, if such indemnified party notifies the indemnifying party in writing
that it elects to employ separate counsel at the expense of the indemnifying
party, the indemnifying party shall not have the right to assume the defense of
such action or proceeding on behalf of such indemnified party; it being
understood, however, that the indemnifying party shall not, in connection with
any one such action or proceeding or separate but substantially similar or
related actions or proceedings in the same jurisdiction arising out of the same
general allegations or circumstances, be liable for the fees and expenses of
more than one separate firm of attorneys (together with appropriate local
counsel) at any time for such indemnified party, which firm shall be designated
in writing by such indemnified party and reasonably satisfactory to the
indemnifying party). The indemnifying party shall not be liable for any
settlement of any such action or proceeding erected without its written consent,
but if settled with its written consent, or if there is a final judgment for the
plaintiff in any such action or proceeding, the indemnifying party shall
indemnify and hold harmless the indemnified party from and against any loss or
liability (to the extent stated above) by reason of such settlement or judgment.
(d) Contribution. If the indemnification provided for in this Section 7
is unavailable to the Company or the Selling Holders in respect of any losses,
claims, damages, liabilities or judgments referred to herein, then each such
indemnifying party, in lieu of indemnifying such indemnified party, shall
contribute to the amount paid or payable by such
-10-
indemnified party as a result of such losses, claims, damages, liabilities and
judgments in such proportion as is appropriate to reflect the relative fault of
each such party in connection with such statements or omissions or alleged
statements or omissions, as well as any other relevant equitable considerations.
The relative fault of each such party shall be determined by reference to, among
other things, whether the untrue or alleged untrue statement of a material fact
or the omission or alleged omission to state a material fact relates to
information supplied by such party, and the parties' relative intent, knowledge,
access to information and opportunity to correct or prevent such statement or
omission. The Company and the Selling Holders agree that it would not be just
and equitable if contribution pursuant to this Section 7(d) were determined by
pro rata allocation or by any other method of allocation which does not take
account of the equitable considerations referred to in the immediately preceding
sentences. The amount paid or payable by an indemnified party as a result of the
losses, claims, damages, liabilities or judgments referred to in the immediately
preceding sentences shall be deemed to include, subject to the limitations set
forth above, any legal or other expenses reasonably incurred by such indemnified
party in connection with investigating or defending any such action or claims.
Notwithstanding the provisions of this Section 7(d), no Selling Holder shall be
required to contribute an amount in excess of the amount by which the total
price at which the Restricted Stock of such Selling Holder was offered to the
public exceeds the amount of any fee which such Selling Holder has otherwise
been required to pay by reason of such untrue or alleged untrue statement or
omission or alleged omission. No person guilty of fraudulent misrepresentation
(within the meaning of Section 11(f) or the Securities Act) shall be entitled to
contribution from any person who is not guilty of such fraudulent
misrepresentation.
8. Option to Purchase Shares.
(a) Grant of Option. The Company hereby grants to the Holder an option
(the "Option"), exercisable at any time or from time to time prior to the
Expiration Date (as defined below) upon the original issuance of shares of
Common Stock by the Company, to purchase from the Company such number of shares
of Common Stock (and/or preferred stock of the Company if any shall be issued
and outstanding), as the Holder may determine in its sole judgment (i) to be
appropriate to ensure that the Holder may continue to include the Company and
its subsidiaries in the Holder's consolidated federal income tax returns (in
accordance with Section 1504 of the Internal Revenue Code of 1986, as amended
(including the regulations thereto, the "Code"), or any successor or additional
section dealing with the inclusion of any entity within an affiliated group for
purposes of filing a consolidated return), regardless of the circumstances which
may give rise to such determination by the Holder, or (ii) to permit the
Distribution to be tax free under Section 355 of the Code or any successor or
additional section dealing with the tax-free distribution of subsidiary stock.
Upon the original issuance of any Common Stock or equity securities convertible
into or exercisable for Common Stock, the Company will give notice of such
issuance to the Holder within ten business days thereof. The per share purchase
price for any shares purchased pursuant to the Option shall be the closing
price, on the business day immediately preceding the payment of such purchase
price, for shares of Common Stock (or, to the extent applicable, preferred
stock) on the Nasdaq National Market, as published in the Wall Street Journal,
or if the
-11-
Common Stock (or, to the extent applicable, preferred stock) was not traded on
the Nasdaq National Market, then the closing price for shares of Common Stock
(or, to the extent applicable, preferred stock) on such day on such other
securities exchange or recognized trading system as published in the Wall Street
Journal, and if the Common Stock (or, to the extent applicable, preferred stock)
was not traded on any exchange or recognized trading system, then the fair
market value of a share of Common Stock (or, to the extent applicable, preferred
stock) on such day. The purchase price for any shares purchased pursuant to the
Option may be paid, at the option of the Holder, in cash or in property of a
type used by the Company in its business, such property to be valued pursuant to
the mutual agreement of the Company and the Holder. The Option shall expire and
cease to be exercisable upon the earlier to occur of (i) the Distribution, (ii)
the sale by the Holder of such number of shares of Common Stock that the Holder
is no longer eligible to make the Distribution tax free or to include the
Company and its subsidiaries in the Holder's consolidated federal income tax
returns pursuant to the provisions of the Code and (iii) the tenth anniversary
of the date hereof (subject to extension for one or more successive 10-year
terms at the Holder's option, upon delivery by the Holder to the Company of a
written notice to that effect), the date of such expiration being the
"Expiration Date."
(b) Exercise of Option; Time and Place of Closing.
(i) the Holder may, at any time or from time to time prior to the
Expiration Date, exercise the Option by delivering to the Company a written
notice (an "Exercise Notice") to such effect specifying the number of shares of
Common Stock and/or preferred stock of the Company that the Holder has
determined to purchase. Except to the extent that the parties may otherwise
agree, the closing of the purchase and of the shares specified in any Exercise
Notice shall occur at the principal executive offices of the Company at 10:00
a.m. local time on the third business day following the date at which such
Exercise Notice is delivered to the Company. At each such closing, the Company
shall deliver to the Holder one or more certificates representing the shares
specified in the Exercise Notice, registered in the name at the Holder, against
delivery by the Holder to the Company of the aggregate purchase price therefor,
the election of the Holder, in cash or in property of a type used by the Company
in its business, such property to be valued pursuant to the mutual agreement of
the Company and the Holder.
(ii) notwithstanding anything to the contrary herein contained, in
the event that any shares of Common Stock are issued prior to the Distribution
upon the exercise of any option or other award granted under the Company's 1996
Long-Term Incentive Plan (a "Company Stock Option"), the Option shall
automatically be deemed to have been exercised in respect of a number of shares
of Common Stock equal to 4 times the number of shares of Common Stock issued
upon the exercise of the Company Stock Option (unless the Holder shall have
theretofore notified the Company in writing that the Holder shall have
terminated the foregoing automatic exercise feature of the option), and the
closing of the purchase and sale of the shares of Common Stock subject to such
automatic exercise of the Option (the "Automatic Exercise Shares") shall occur
(or shall be deemed to have occurred) concurrently with the issuance of shares
of Common Stock pursuant to the Company Stock Option. An
-12-
exercise pursuant to this subsection shall be revocable by the Holder within
five business days after exercise. In the event that it shall have been
impractical to effect the deliveries contemplated by the second preceding
sentence at the time that the closing of the purchase and sale of the Automatic
Exercise Shares shall have been deemed to have occurred, such deliveries shall
be made as promptly as practicable thereafter; provided, however, that such
Automatic Exercise Shares shall nonetheless be deemed to have been issued to the
Holder concurrently with the issuance of shares of Common Stock pursuant to the
Company Stock Option and legal title to funds of the Holder (which shall be held
in trust by the Holder for the benefit of the Company pending the delivery
thereof to the Company) in an amount equal to the aggregate purchase price for
the Automatic Exercise Shares shall be deemed to have concurrently passed to the
Company in consideration of such issuance of the Automatic Exercise Shares.
(c) Representations and Warranties: Corporate Action. The Company
hereby represents and warrants to the Holder that all shares of Common Stock
(or, to the extent applicable, preferred stock) issued to the Holder upon any
exercise of the Option shall, upon issuance thereof as provided herein against
payment of the purchase price therefor as provided herein, be duly authorized,
validly issued, fully paid and nonassessable, and hereby undertakes (i) to cause
any and all corporate and other actions required in connection therewith to be
taken in a timely manner and (ii) not to take any action that would prevent the
foregoing representations and warranties from being true and correct.
9. Miscellaneous.
(a) Effectiveness. This Agreement shall become effective on the date on
which the purchase and sale of shares of Common Stock pursuant to the Initial
Public Offering first occurs.
(b) Successors and Assigns. This Agreement shall be binding upon the
parties hereto and their respective successors and permitted assigns and shall
inure to the benefit of the parties hereto and their respective successors and
permitted assigns. This Agreement may not be assigned by either party hereto to
any other person, except that either party may assign this Agreement to any of
its affiliates, and the Holder may assign its rights hereunder to any transferee
of at least 25% of the shares of Restricted Stock that are outstanding on the
date of the closing of the Initial Public Offering.
(c) No Third-Party Beneficiaries. Nothing expressed or implied in this
Agreement shall be construed to give any person or entity other than the parties
hereto any legal or equitable rights hereunder.
(d) Entire Agreement. This Agreement constitutes the entire agreement
between the parties with respect to the subject matter hereof.
(e) Amendment. This Agreement may not be amended except by an
instrument signed by the parties hereto.
-13-
(f) Waivers. Either party hereto may (i) extend the time for the
performance of any of the obligations or other act of the other party, (ii)
waive any inaccuracies in the representations and warranties contained herein,
or (iii) waive compliance with any of the agreements contained herein. No waiver
of any term shall be construed as a waiver of the same term, or a waiver of any
other term, of this Agreement. The failure of any party to assert any of its
rights hereunder will not constitute a waiver of any such rights.
(g) Severability. If any provision of this Agreement is invalid,
illegal or incapable of being enforced by any rule of law or public policy, such
provision shall be deemed severable and all other provisions of this Agreement
shall nevertheless remain in full force and effect.
(h) Headings. Section headings in this Agreement are included herein
for convenience of reference only and shall not constitute a part of this
Agreement for any other purpose.
(i) Notices. All notices given in connection with this Agreement shall
be in writing. Service of such notices shall be deemed complete (i) if hand
delivered, on the date of delivery, (ii) if by mail, on the fourth business day
following the day of deposit in the United States mail, by certified or
registered mail, first-class postage prepaid, (iii) if sent by Federal Express
or equivalent courier service, on the next business day, or (iv) if sent by
telecopier facsimile, on the date of the confirmation of delivery. Such notices
shall be addressed to the parties at the following addresses or at such other
address for a party as shall be specified by like notice (except that notices of
change of address shall be effective upon receipt):
If to Holder: Intelligent Electronics, Inc.
000 Xxxxxxxxx Xxxxxxxxx
Xxxxx, Xxxxxxxxxxxx 00000
Attn: President
Telecopy No.: (000) 000-0000
If to the Company: XLConnect Solutions, Inc.
000 Xxxxxxxxx Xxxxxxxxx
Xxxxx, Xxxxxxxxxxxx 00000
Attn: President
Telecopy No.: (000) 000-0000
(j) Governing Law. This Agreement shall be governed by, and construed
in accordance with, the laws of the Commonwealth of Pennsylvania, without giving
effect to the principles of conflict of laws of such Commonwealth.
-14-
(k) Counterparts. This Agreement may be executed in counterparts, each
of which shall be an original, but all of which together shall constitute but
one and the same instrument.
IN WITNESS WHEREOF, the Company and the Holder have caused this
Agreement to be executed on the date first above written.
XLCONNECT SOLUTIONS, INC.
By: /s/ Xxxxxxxxx Xxxxx
-----------------------
Name: Xxxxxxxxx Xxxxx
Title: Chief Financial Officer
THE FUTURE NOW OF ARKANSAS, INC.
By: /s/ Xxxxxx Xxxxxx
-----------------------
Name: Xxxxxx Xxxxxx
Title: Chief Financial Officer
INTELLIGENT ELECTRONICS, INC.
By: /s/ Xxxxxx Xxxxxx
-----------------------
Name: Xxxxxx Xxxxxx
Title: Chief Financial Officer
-15-